World Journal of Management
Vol. 6. No. 1. March 2015 Issue. Pp. 10 – 23
Is Internal Market Orientation Still a Good Strategy to Promote
Business Performance? : Evidence from Taiwan
Yuan-Cheng Tsai* and Yi-Lun Chi**
Internal market orientation, equivalent to market orientation that is known to
precede the effective implementation of marketing strategies, may increase
the effectiveness of market-oriented company’s response to market
conditions because it allows the company’s management to better align
market objectives with internal capabilities, and it can help enterprise to build
managerial capabilities. The purpose of this paper is to examine the impact
of Internal market orientation on the application of internal performance,
market orientation and external performance. We also verify the mediate
effect of market orientation and internal performance on the relationship
between Internal market orientation and external performance. The
theoretical model is tested with the linear structured equation which is
consistent with partial least squares (PLS) path modeling assumptions. Data
were collected from 142 dyads effective questionnaires. The research
findings contribute to marketing theory by providing empirical evidence to
support assumption that internal marketing has an impact on marketing
success and offers an explanation by which this influence operates. Finally,
according to the conceptual framework and research findings, this study is
presented with implications for managers and recommendations for future
research.
Keywords: Internal market orientation, Market orientation, Internal performance, External
performance, PLS..
1. Introduction
This article empirically studies an instrument for assessing the company’s degree of
internal market orientation (IMO) adoption. Market oriented behavior is an implementation
and a reemphasis of the marketing concept. All enterprises are under pressure from
international competition coupled with the advancement of technologies; shortened product
life cycle and reduction in differentiation in products. In order to maintain their competitive
advantages in the market, they must be able to generate customers on a sustained basis
while meeting the needs of existing customers in order to raise customer satisfaction and
loyalty. Thus marketing concepts should be introduced to create customer values. In any
case, a market-oriented approach involves treating customers as playing the most
important role. They constitute a key resource for a company to create competitive
advantage (Hunt and Morgan, 1995). Narver and Slater (1990) felt that market-orientation
is a type of corporate culture and helps enterprise to create outstanding value for
customers. In other words, market orientation emphasizes putting the interests of
customers before those of enterprises (Deshpande, Farley and Webster, 1993). The
ultimate objective is to bring profit to the enterprise and to effectively raise corporate
performance (Kohli and Jaworski, 1990; Rueket, 1992). This has become so particularly
because employees can create good service during
*Dr. Tsai, Yuan-Cheng, Department of Marketing and Supply Chain Management, Overseas Chinese
University, R.O.C. Email: [email protected]
**Chi, Yi-Lun, Department of Marketing and Supply Chain Management, Overseas Chinese University,
R.O.C. Email: [email protected]
Tsai & Chi
their contact with customers. The employee’s attitude decides customers' perception and
level of satisfaction with services. Likewise, service can become a competitive advantage.
In fact this the basic concept emphasized in internal marketing. Once an enterprise’s
management is able to appreciate the role and importance of its employees in marketing,
enhancement of the employees’ acceptance of market-oriented strategies and
implementation of customer-centric ideas on an enterprise-wide basis would result in
achieving customer satisfaction and establishment of competitive advantage. In order for
an enterprise’s service and product be accepted by its employees, the enterprise should
first of all treat its employees as its internal customers (Lings 2004; Lings and Greenley,
2005), and focus on the service process and the personnel who have direct contact with
customers.
IMO emphasizes how an enterprise can foster the relationship between its employees and
customers (Berry and Parasuraman, 1991). In other words, since an enterprise is to treat
its employees as customers, it should meet their needs as far as possible. In order to
attract outstanding potential customers and encourage the existing customers, the
enterprise should accord the importance to internal market studies, segregation of internal
markets, communication and advertisements as if they are commercial marketing (Lings
and Greenley, 2001). These activities must be built on employees. For IMO to operate
successfully, the employees must surely occupy an important part. In order for an
enterprise to create greater competitive advantage, it should in addition to possessing a
culture of servicing customers and understanding competitors, also possess the ability to
implement various measures for its employees, e.g. raising employees’ service quality
through exchanging of information among the employees or providing good work design
through understanding the employees. Only if they are satisfied would employees be
motivated to provide better service, thereby raising the enterprise’s external performance
(customer satisfaction and loyalty). Although it has been mentioned in many literature on
market orientation that market orientation must emphasize the flow of information (Kohli
and Jaworski, 1990), few have emphasized the impact of market orientation on external
performance. Likewise, although literature related to IMO mentions that once an enterprise
adopts IMO, flow of information among departments and communication between
employees would increase (Gronroos 2000), only a few have focused on its impact on the
enterprise’s external performance (Lings 2004). In the past, there have been relatively few
studies on practical examples. Thus, this study proposes a research which is consolidated
by studying the relationship among an enterprise’s IMO, internal performance, market
orientation and external performance. Furthermore, this study aims to show how an
enterprise can raise its internal performance through its IMO strategies, thereby improving
its market orientation and external performance (Dong, Hinsch, Zou and Fu, 2013;
Sørensen and Madsen, 2012; Laukkanen, Nagy, Hirvonen, Reijonen and Pasanen, 2013).
The following sections of the paper are organized as follows. First, the theoretical model
and research hypotheses, including the literature review, are discussed and displayed.
Secondly, we describe the questionnaire, the data and the methods. Finally, we report the
results, draw conclusions, and discuss the implications, while directions for future research
are also suggested.
2. Theoretical Model and Hypotheses
2.1 Internal Market Orientation (IMO)
IMO is implemented through the generation and dissemination of intelligence on internal
market and the response to the said intelligence (Lings 2004; Lings and Greenley, 2005;
11
Tsai & Chi
Gounaris 2006; Tortosa, Moliner and Sanchez, 2009). Employees are kept satisfied
through work designs which meet the employees’ needs and employment terms (Lings
2004). At such measures and activities can spur and encourage employees (Gronroos
2000; Tortosa, Moliner and Sanchez, 2009), and at the same foster a positive attitude
among employees towards the enterprise, they can be extended to cover external
customers. In other words, in order to be able to survive in an intensely competitive
environment, an enterprise should treat its employees as internal customers and satisfy
their respective needs (Lings 2004). On the other hand, the enterprise should consider how
to establish, from the customer’s perspective within it, an organizational environment which
is suitable to its employees. It should also consider how to execute IMO strategies to
encourage employees. It should pay attention to employees’ needs; analyze in a
systematic manner the working conditions for its employees and establish a
comprehensive incentive policy and system to raise employees’ job satisfaction and
commitment to the organization, thereby raising customer satisfaction and customer loyalty.
In fact, results of a research conducted by Gounaris (2008) on 20 five-star luxury hotels
show that there is indeed a close relationship between employees’ job satisfaction and the
promotion of internal marketing, and IMO will also regulate employees’ job satisfaction and
internal marketing practices. In this study, it is thought that IMO is used to describe the
shortcomings in internal marketing theories. Its main concept and meaning should be for
companies to treat employees as customers and to use human resources measures to
market to their internal customers. Retaining employees who are needed by the enterprise
is a management philosophy which involves treating employees as if they are customers. It
is also a development strategy for products which meet the needs of employees deployed
in order to foster employee job satisfaction and loyalty to the enterprise (Berry and
Parasuraman, 1991).
2.2 Internal Market Orientation (IMO) and Internal Performance
IMO is treating internal employees from the perspective of human resources, and focuses
on employees who are involved in the service process and who have direct contact with
customers. Employees who have to face customers are handled according to ways similar
to marketing (Lings 2004; Lings and Greenley, 2001; Rafiq and Ahmed, 2003; Gronroos
2000). Chen (2008) proposed that an enterprise which installed information system would
suitably encourage and raise employee’s job satisfaction. Lings (2000) went even further,
by surmising that actions of IMO could raise work performance, including positive work
attitude; emotional commitment to the organization; improvement in staff morale; reduction
in staff turnover; enhance the enterprise’s reputation and image, and improving employees'
customer and market orientation. After consolidating the relevant literature, Lings (2004)
pointed out that measures such as customer orientation; training; departmental interaction;
management support and marketing participation, etc. are capable of raising employees’
job satisfaction.
An enterprise’s IMO strategy can first of all meet the needs of its internal customers, so that
its employees can obtain job satisfaction and can identify with the company’s values and
policies, etc. Webb and Lambe (2007) pointed out that IMO was helpful to communication
and coordination within an organization. At the same time, IMO stresses the use of internal
products to meet the internal customers’ needs. Gounaris (2006) went a step further by
dividing IMO into three facets, namely the generation and dissemination of internal market
intelligence and response to the said intelligence. He also proved that the more an
enterprise introduces IMO, the more positive its impact on employee participation;
employees’ delegation of responsibilities and job satisfaction. Based on the aforesaid, we
12
Tsai & Chi
can come to the conclusion that if an enterprise were to implement IMO strategies it would
surely raise its employees’ job satisfaction and enhance their commitment to the
organization (Banai, Reisel and Probst, 2004; Ackfeldt and Coote, 2005). As such, this
study establishes the following hypothesis:
H1: The company’s degree of IMO adoption is positively related to employees’
internal performance.
2.3 Internal Market Orientation (IMO) and Market Orientation
IMO can result in employee satisfaction (Piercy 1995) which would in turn enable
employees to be more willing to undertake activities which allow them to understand
customers and competitors. George (1990) pointed out that when activities akin to
marketing are applied within an organization, employees will be spurred to have greater
service awareness and customer-oriented. Conversely, when enterprise management
engages in two-way communication with employees, the latter would relay their working
needs as well as information on external customers and competitors. Such a
communication would foster market orientation. Therefore, an organization can use IMO
such as incentives and rewards to encourage employees to achieve market orientation
(Ruekert 1992). Moreover, the incentive and reward methods must enable employees to
possess awareness for market orientation, and not some methods with short-term profit
and sales to attract employees (Jaworski and Kohli, 1993; Banai et al., 2004; Ackfeldt and
Coote, 2005). Thus, when an organization stresses the importance of its employees’ needs
and encourages its employees to express their needs and suitable reward system through
various management channels, the employees would be more likely to have a positive
work attitude and by the same token achieve job satisfaction. By essence it is a type of
attitude, but it is precisely a person's attitude which affects his behavior. In order to provide
customers with excellent service, a company is required to integrate various departments
within it which are related to customer service and provide the employees who carry out
such service with effective support and assistance. By resolving the issue of work interface
among employees, internal service quality is improved. Thus mutual reliance among the
departments will improve intra-department communication. At the same time it can facilitate
the dissemination of intelligence, thereby enhancing the level of market orientation (Lings
2000). Based on the aforesaid, this study has established the following hypothesis:
H2: The greater the company’s degree of IMO adopts, the greater the level of
market orientation.
2.4 Internal Performance, Market Orientation and External Performance
George (1990) proposed the concept that in order to satisfy external customers, an
enterprise must first satisfy its internal employees. Gronroos (2000) furthermore pointed
out that in order for a company’s employees who come into contact with customers to be
encouraged and to become those with customer awareness, the company should integrate
all departments relating to the provision of services to customers. It should furthermore
provide its service employees with effective logistical support. In other words, employees
with job satisfaction would be more encouraged to carry out the enterprise’s
market-orientation strategies (Piercy 1995; Berry and Parasuraman, 1991). Thus, this
study has established the following hypothesis:
13
Tsai & Chi
H3: The greater the employees’ degree of internal performance adopts, the greater
the level of market orientation.
Lings (2004) takes the view that internal performance has a positive impact on external
performance. Like wise, many literature mentioned that an enterprise’s internal
performance (employees’ job satisfaction and organizational commitment) have a positive
impact (Piercy 1995) on external performance (customer satisfaction and customer loyalty).
Put it another way, only when employees are satisfied and accept an enterprise’s internal
values and policies will they be able to provide services which satisfy external customers.
Studies by Hartline and Ferrell (1996) show that there is a correlation between employees’
job satisfaction and the service quality perceived by customers; a service quality of which
customers are highly aware must necessarily raise customer satisfaction and loyalty.
Based on the aforesaid, this study establishes the following hypothesis:
H4: The greater the internal performance, as perceived by the employee, the
greater the customer external performance is.
Ruekert (1992) thought that market orientation involves an enterprise obtaining the
relevant information from its customers and knowing how to apply them in order to develop
strategies which meet customers’ needs and to implement them in response to such needs
and expectations. From the above it is possible to see that more market intelligence would
be produced by employees who are market-oriented through customer orientation and
competitor orientation, and that once the said intelligence is disseminated through
intra-department coordination to reflect market situation in a timely manner, greater value
would be produced for customers. Hence customer satisfaction will be achieved, which
would in turn achieve the objective of customer loyalty (Maydeu-Olivares and Lado, 2003).
Based on the aforesaid, this study establishes the following hypothesis:
H5: The manager’s perception of the firm’s market orientation positively
influences the customer’s perception of external performance.
3. Methodology
3.1 Operating Definition and Measurement of Research Variables
The Research consists of four major constructions, namely IMO; internal performance;
market orientation and external performance. The operating definitions of the constructions
and variables in this study are primarily based on the viewpoints in the relevant literature
which are adapted for the purposes of this Study. Thus "IMO" has been defined, based on
the studies of Lings and Greenley (2001) and Lings (2004). In addition, this study defines
“internal performance” based on the viewpoints of Lings (2004); Marketing orientation can
in general have two different operating definitions, i.e. that of Narver and Slater (1990).
Finally, the operational definition of “external performance” based on the views of Lings
(2004). In order to purify the relationship between the variables in this study, the scale and
years of establishment of the enterprises have been used as the control variables for the
analytical model. This study primarily involves large enterprises in Taiwan. Since there is
also a difference in scale even among such large enterprises, for the purposes of this study
the number of employees of the enterprises has been used as control variable for the
model.
14
Tsai & Chi
3.2 Design of Questionnaire
This study’s questionnaire is compiled, in addition to relevant theories and literature, based
on interviews with senior managers of three enterprises which are representative of their
respective industries, namely aeronautical and aviation; petrochemical and service
management industries in accordance with the theme of this study. Following their
completion, the draft questionnaires were sent to 45 candidate companies in Taiwan were
selected (to fill in Part 1 of the questionnaire) and 45 customers of the said candidate
companies (to fill in Part 2 of the questionnaire). 38 sets of the candidate companies and
their customers returned the questionnaires. Upon analysis of their certain factor and
verification analysis of the effectiveness of the questionnaires, with unsuitable items being
deleted, it was found that the certainty factor values (Cronbach’s α) were all larger than 0.7,
whereas the fitted value of the verification analysis also showed excellent fit.
3.3 Sample Design and Survey by Questionnaire
The main objective of this section is to verify whether the fit of this study’s theoretical model
is of a reasonable standard, as well as to examine the propositions tabled in the study. The
questionnaires originally contained 51 questions owing to the considerable number of
variables in this study. Upon verification of reliability and effect the number was reduced to
34 questions. Partial least square (PLS) method was applied in structural equation
modeling (SEM) to verify the level of fit for overall theoretical model. The advantage of
using SEM is that it enables simultaneous checking of the path relationship as well as
estimate and measure the parameters and bias and the fit of the overall model.
Sample-taking consisted of two phases. The first phase involved pre-test, with the draft
questionnaire revised based on its results. The second phase was official distribution of
questionnaire. 500 companies were randomly selected from Taiwan's top 1,000 companies
as listed in the Common Wealth magazine as the survey subjects. The questionnaire
consisted of Part 1 (specifically for the subject company and comprises of three major
constructs, i.e. IMO; internal performance and market orientation) and Part 2 (specifically
for the subject company’s customers and contained only on external performance). Three
sets of the questionnaires were mailed to each of the selected companies and their
customers. Those who did not reply would be reminded by way of telephone calls or letters
four weeks after the mailing and given another four weeks to return the questionnaires. In
all 153 sets of questionnaires were returned, of which 11 were invalid, leaving 142
(matching) sets of questionnaires. The recovery rate for valid questionnaires was 28.4%.
The whole survey process lasted roughly four and a half months.
4 Results
4.1 Data Collection and Sample Characteristics
The objects of the survey in this study were senior employees or senior managers in large
enterprises. Out of the 142 companies which returned valid questionnaires, 52 (36.6%)
companies had been established for 15-20 years, making them the largest constituents.
They were followed by 44 (30.9%) companies which had been in business for 10-15 years;
42 (29.6%) companies which were in business for over 20 years. 4 (2.8%) companies were
in business for 5-10 years, while only 2 (1.4%) was less than 5 years in age. Thus it can be
seen that the valid returns were mostly from those enterprises with relatively long corporate
15
Tsai & Chi
history, whereas new companies were a very small portion. In terms of number of
employees, there were 52 (36.6%) companies with more than 2,000 employees; 36 (25.3%)
companies with 1,500-2,000 employees; 32 (22.5%) companies with 1,000-1,500
companies; 14 (9.8%) companies with 500-1,000 companies with 500-1,000 employees
and 10 (7.0%) companies with less than 500 employees.
4.2 Testing for Nonresponse Bias
In In order to test whether or not the samples contained any response bias, the samples
were classified into two groups based on the timing of their reply. Chi-square tests were
carried out based on the gender; number of employees; years of establishment and
educational level, with the chi-square values being -1.376 (p=0.439); 1.131 (p=0.351);
1.236 (p=0.313) and 0.529 (p=0.715) respectively. An independent hypothesis is the
inability to reject the said groups, indicating that the samples did not contain nonresponse
bias (Armstrong and Overton, 1977).
4.3 Testing of Measurement Model
Given that the survey subjects in this study were mostly senior managers in large
enterprises, common methods variance might occur if an interviewee were to fill the same
questionnaire twice, thus leading to raising or reducing the relationship between the
variables (MacKenzie, Podsakoff and Rich, 2001). To reduce this likelihood, when
designing the questionnaires those questions concerning attitude were as far as possible
avoided. Questions were asked on more practical matters in order to reduce the variance
(Podsakoff and Organ, 1986). Furthermore the questionnaires were handled in two parts.
The first concerned matching questionnaires. In other words the first three sections of the
questionnaires were to be filled in the subject companies, while the fourth section was to be
entered by the subject companies’ customer companies. The questionnaires were then
matched. The study structure in this study includes measurement model and structural
model. Analysis of data was carried out using structural equation modeling (SEM) or partial
least square (PLS), in order to analyze the measurement model and structural model at the
same time.
To carry out PLS, a Structural Model and the respective construct-to-measures
relationships must first be established. The constructs can be divided into two major
categories: formative indicators and reflective indicators. Each indicator or construct is
comprised of a set of measures. Whether or not the Structural Model possesses an ability
for interpreting and forecasting depends on the indicators such as its internal consistency;
discriminate validity; path coefficient test and modular interpretation R2, etc. For the
purposes of this study 6 variables were use to set up the PLS Structural Model, with testing
of the study propositions and the interpretation between the constructs using the path
coefficients and measurement indicators R2. with measurement of the modular
interpretation.
4.4 Reliability and Validity
Reliability refers to the correctness or the accuracy of the measurement tools as to whether
they possess repeatability and internal consistency. The results of data analysis (see Table
1) show that other than Cronbach’s α of 0.63 for the generation of internal intelligence and
0.68 for the dissemination of internal intelligence, all the rest were higher than 0.7. Hence
the data contained a certain level of reliability.
16
Tsai & Chi
Validity refers to the measurement tools can truly measure the questions studied by the
researcher. During the formulation of the questionnaires, the contents of the variables were
discussed based on established literature. The completed draft was the pre-tested for
confirmation and revision. Thus the content validity possessed certain standard. With
respect to the convergent validity, it was possible to use (1) composite reliability of
construct (CR), and (2) average variance extracted (AVE) to evaluate the same (Komiak
and Benbasat, 2006). The CR value of the respective constructs in this study were in the
range of 0.81~0.93 which were higher than the value of 0.7 recommended by Fornell and
Larcker (1981). Fornell and Larcker (1981) though that the AVE of the constructs should
exceed 0.5 before they can be considered as convergent. Since the AVE of the respective
constructs were within 0.63~0.92; hence they were in conformity with standards. It could be
seen from considering the judgment standard for the convergence that the measurement
model in this study’s measurement model possesses an excellent convergence.
The discriminant validity can be calculated by dividing the factor loadings and the relevant
coefficients of the constructs with the square root of AVE (Komiak & Benbasat, 2006). It can
be seen from Table 1 that the factor loadings for the respective measures’ corresponding
potential factors were higher, but were lower with respect to other factors, thus indicating
that they were conforming to the standards for discriminant validity. With respect to the
standard for AVE and the relevant coefficient, AVE’s square root must be larger than the
relevant coefficient for the respective constructs. It cols also be seen from the results in
Table 1 that the discriminant validity for the measurement models in this study conformed
to the standards.
Table 1: Indices and test values of the respective factors
Factor
α
CR
AVE
IG
IG
0.63
0.81
0.63
0.79
ID
0.68
0.83
0.68
0.72
0.82
IR
0.85
0.90
0.85
0.66
0.81
0.92
IP
0.87
0.90
0.87
0.77
0.82
0.82
0.93
MO
0.92
0.93
0.92
0.56
0.69
0.67
0.68
0.95
EP
0.81
0.87
0.81
0.60
0.67
0.72
0.76
0.70
0.90
Y
0.00
1.00
1.00
-0.15
0.05
0.11
0.10
0.16
0.11
1.00
N
0.00
1.00
1.00
0.10
0.10
0.05
0.05
0.10
0.06
-0.16
ID
IR
IP
EO
EP
Y
N
1.00
Note: IG: Internal intelligence generation; ID: Internal intelligence dissemination; IR: Internal intelligence response;
IP: Internal performance; MO: Market orientation; EP: External performance; Y: Years of establishment; N: Number of workers
4.5 Testing the Hypotheses
The research structure in Figure 1 was analyzed using PLS. It is possible to evaluate the
interpretive ability of the Structural Model using R2 of each endogenous variable (Komiak
and Benbasat, 2006). The R2 of the respective constructs in this study is in the range of
0.529~0.815. Therefore the model can explain the variation between 52.9% and 81.5%
(see Fig. 2).
According to the results of the analysis of PLS, H1 was supported, the coefficient of the
enterprises’ internal intelligence generation versus its internal performance was 0.331
(p-value smaller than 0.01); that of its internal intelligence dissemination versus its internal
17
Tsai & Chi
performance was 0.271 (p-value smaller than 0.05) and that for its internal intelligence
response versus its internal performance was 0.372 (p-value smaller than 0.01). H2 was
supported, the coefficient of an enterprise’s internal intelligence generation versus market
orientation was 0.01 (p-value larger than 0.05); that of its internal intelligence dissemination
versus market orientation was 0.327 (p-value smaller than 0.05) and that for its internal
intelligence response versus market orientation was 0.191 (p-value larger than 0.05). They
verified the hypotheses of scholars such as Lings (2004). The path coefficient of the
enterprises’ internal performance and external performance was 0.245. However, it is not
statistically significant. H3 was not supported by statistics, it would be inconsistent with the
studies of Lings (2004). This study will seek to explain in-depth, why such a result has
occurred.
The enterprises’ internal performance significantly affected their external performance. The
path coefficient was 0.512 (with p-value of less than 0.01); hence H4 was supported by
statistics. Likewise, their market orientation is positively related to their external
performance (coefficient of 0.354; p-value less than 0.05); hence H5 was statistically
supported. In addition, the control variables in this study (years of establishment and
number of employees) did not have any significant impact on the enterprises’ performance.
Figure 1: PLS Analysis Results
Years of
establishment
Internal performance
R2=0.815
0.331**
0.512**
0.005
0.271*
Internal Market
Orientation
0.372**
Production of internal
intelligence
External performance
0.245
Dissemination of
internal intelligence
R2=0.637
0.010
Response to internal
intelligence
0.327*
0.354*
0.002
0.191
Market Orientation
R2=0.529
No. of employees
Note:
1. Figures on arrows represent path coefficient of respective constructs
2. * significant at p=0.05, and ** significant at p=0.01
3. ---> dotted lines denotes path relationship not significant
Under this study, PLS analysis was carried out using internal intelligence generation (IG);
internal intelligence dissemination (ID) and internal intelligence response (IR) as IV, and
internal performance (IP) and market orientation (MO) as M, with the results as shown in
Table 2. The enterprises’ IG, ID and IR had had significant impact on their external
performance (Step 1); they also respectively affected to a significant extent the enterprises’
IP and MO (Step 2). However when M and IV were simultaneously incorporated in the
regression model, the relationship between the enterprises’ IG (through IP); ID (through IP)
and IR (through MO) and their external performance fully possessed mediation effect, with
all other paths possessing only partial mediation effect (Step 3).
18
Tsai & Chi
Table 2: Results of Mediation Effect Test
IV
M
DV
IV→DV
IV→M
IV+M→DV
IV
M
Mediation
Effect
IG
IP
EP
0.621**
0.665**
0.234
0.582**
fully
IG
EO
EP
0.621**
0.785**
0.222
0.508**
fully
ID
IP
EP
0.648**
0.785**
0.181
0.595**
fully
ID
EO
EP
0.648**
0.665**
0.349**
0.451**
Partially
IR
IP
EP
0.633**
0.779**
0.225
0.562**
fully
IR
EO
EP
0.633**
0.649**
0.380**
0.436**
Partially
* significant at p=0.05; ** significant at p=0.01
5. Discussion
5.1 Conclusion
The results of this study’s tests show that, with respect to the structural formula, IMO will
have a positive impact on the implementation of IP and MO. Furthermore they will indirectly
affect an enterprise’s external performance through IP and MO. Upon an organization
adopting IMO (i.e. IG, ID and IR), it will have a positive impact on its IP, out of which IG’s
impact would be most significant. In addition to the significant and positive relationship
between ID and MO, the fact that the other variables in the internal market such as IG and
IR do not have any significant relationship with MO indicates that no matter how high the
level of IG and IR, they are unable to effectively improve MO. Therefore, enterprises are
encouraged to begin with ID and focus on employees’ needs. A company’s management
should understand how other companies maintain their employees’ satisfaction. It should
then assign its work according to the respective employees’ characteristics and needs. It
should also engage in full communication with its employees. Moreover all important
human resource policy decision should meet the employees’ needs, i.e. in conformity with
their performance and respective needs such that measures or actions are to the
satisfaction of employees. As a result, employees must necessarily be more willing to
undertake actions to understand customers and to response swiftly to their needs, thereby
improving the strategic results of the enterprise’s MO.
In contrast with the research of Lings (2004), it was found that the enterprises’ IP did not
have any significant impact on their MO. A possible reason for causing the discrepancy is
MO’s emphasis on enterprises putting customers’ interest as the top priority since MO is
focused on customers (Deshpande, Farley and Webster, 1993). It is a key resource for
companies to create their competitive advantages, and its implementation and results are
alt the enterprise level. On the other hand, IP is displayed through employees’ personal
satisfaction; commitment and decision to remain, with the said attributes being merely at a
personal level. After all, it would appear that an enterprise’s overall performance is unlikely
to be affected by actions at personal level.
Test results have shown than IP had a positive impact on external performance. Thus
enterprises are recommended to focus on ensuring that employees’ professional
knowledge and competence match those of their existing work; they should also be able to
learn and grow as a result of their work. At another level, enterprises should provide good
19
Tsai & Chi
work environment; emphasize amicable working relationship between colleagues so that
employees can develop good friendship with their colleagues during work. The aim is to
ultimately enable employees to be willing to serve in the company and use their best efforts
to overcome work problems and work hard for the company. Their actions will in turn
improve customer satisfaction and customer loyalty. It was also known that MO had a
positive impact on external performance. This is consistent with the views of Narver and
Slater (1990); Jaworski and Kohli (1993), etc.
This study also found that IMO would produce mediation effect on an enterprise’s external
performance through MO. This indicates that IMO will affect MO which will in turn affect an
enterprise’s external performance. This could well be because during the course of the
enterprise’s efforts to use IMO to improve customers’ satisfaction and hence loyalty to the
company, it is at the same time enabling its employees to possess a market-oriented
culture. The latter would mean that MO has a positive impact on the enterprise’s external
performance, which would then in turn enable MO to produce partial mediation effect. In
addition to showing the importance of MO, the above results also demonstrate that IMO is
always implemented through MO, which would therefore affect an enterprise’s external
performance.
Finally, this study used the three-phase mediation effect expounded by Baron and Keeny
(1986) to test the model in order to analyze the question of whether IP and MO act as
mediators in the same way IMO did with respect to external performance. The results
revealed that there were important mediator variables in the said relationship. An
enterprise’s IP and MO possess partial mediation effect, i.e. the incorporation by it of IP
collection and IR will product an indirect effect on MO through IP. With respect to the
enterprise’s IG; internal intelligence collection and IR, even if it were to incorporate them
actively, they would not have any significant contribution to the enterprise’s external
performance. Only through improving its IP and MO would an enterprise’s external
performance be improved.
5.2 Research and Managerial Implications
This study has found that in order to improve external performance, managers must first of
all improve an organization’s IP and MO. To be able to achieve these objections one must
rely on the implementation of IMO. By influencing employees’ actions, managers can
enable employees to be more satisfied with their job; have greater motivation and are more
willing to serve customers. Therefore it is imperative to pay attention to employees’ needs
and to satisfy such needs. More specifically, enterprise managers should strengthen the
generation and dissemination of internal market intelligence and its response and elevate
them to a strategic level comparable to revision of IMO. They should then evaluate the
post-revision impact before incorporating the concept of IMO into their corporate strategies.
This is because IMO will strengthen encouragement to employees and their commitment to
the organization, so that employees will have greater job satisfaction. They will also have
greater desire to remain in the organization as well as greater skills. Loyal employees who
work in enterprises can understand customers’ needs and fulfill such needs, which will in
turn produce more satisfied and loyal customers.
For enterprises which implement IMO, they develop methods which meet employees’
needs and retain employees that they want through training, communication and incentives.
IMO is a management philosophy which proposes that an enterprise treats its customer as
if they are internal customers, and to emphasize the production of products which meet
20
Tsai & Chi
employees’ needs, in order to cultivate employees’ loyalty to the enterprise (Berry and
Parasuraman, 1991). The test results in this study indicate that an enterprise which adopts
IMO strategies had had significant impact on its internal performance, market orientation
and external performance. Thus enterprises should strengthen their relationship with
internal customers. In a case, communication must be two-sided, and not to
indiscriminately requiring employees to receive information and meeting the company’s
demands. At the same time, companies should understand their employees’ needs through
means such as generation and dissemination of and response to internal market
intelligence. They should establish means of confirmation of exchange of values between
them and employees; monitor at all times the labor market and ensure segregation of
internal targets so that employees carry out work which is suited to them (Gounaris 2006).
On another level enterprises must emphasize that management monitor employees’ needs
and supervise communication among employees and between them and management.
The establishment of comprehensive salary and wage system as well as training programs
is also a key issue in an enterprise’s IMO initiatives (Gounaris 2008).
Given that enterprises pursue innovation in performance in order to strengthen their
competitiveness, their employees’ work commitment; level of job satisfaction as well as
their commitment to the organization will have a positive impact on the enterprises'
capacity for innovation. Likewise employees play a very important role in the organization’s
external performance. Therefore enterprises must strengthen their employees’
commitment to the company. They should also foster their job satisfaction in order for the
enterprises to retain talents, thereby bring higher productivity and operating advantages.
When enterprises can consider employees’ needs and expectations; understand their
values for identifying with the company; improve employees’ job satisfaction, and
encourage employees to work hard they can improve their internal performance. The test
results of this study are able to verify that an enterprise which implements IMO strategy can
improve its internal performance, including customer satisfaction and commitment to
organization (Lings 2004). Hence to improve an enterprise’s internal performance it should
thoroughly implement IMO. This can become a point of reference for enterprise managers
in practice, and enterprises in Taiwan should actively promote IMO strategies in order that
they can maintain the capacity to innovate and obtain sustained competitive advantage,
thereby strengthening their international competitiveness as well as that of Taiwan's
industries.
References
Ackfeldt, A L and Coote, LV 2005, ‘A study of organizational citizenship behaviors in a retail
setting’, Journal of Business Research, Vol. 58, pp.151-159.
Armstrong, JS and Overton, TS 1977, Estimating nonresponse bias in mail surveys,
Journal of Marketing Research, Vol. 14, No. 3, pp.396-402.
Banai, M, Reisel, WD and Probst, TM 2004. ‘A managerial and personal control model:
Predictions of work alienation and organizational commitment in hungary, Journal of
International Management, Vol. 10, pp.375-392.
Baron, RM and Kenny, DA 1986, ‘The moderator-mediator variable distinction in social
psychological research: Conceptual, strategic, and statistical consideration’, Journal
of Personality and Social Psychology, Vol. 51, No. 6, pp.1173-1182.
Berry, LL and Parasuraman, A 1991, ‘Marketing services competing through quality’, New
York: Free Press.
21
Tsai & Chi
Chen, LH 2008, ‘Job satisfaction among information system (IS) personnel’, Computers in
Human Behavior, Vol. 24, pp.105-118.
Chin, WW 1997, ‘Overview of the PLS Method’, http://disc-nt.cba.uh.edu/chin/
PLSINTRO.HTM.
Deshpande, RJ, Farley, U and Webster, FE 1993, ‘Corporate Culture, Customer
Orientation, and Innovativeness in Japanese Firms: A Quadrad Analysis’, Journal of
Marketing, Vol. 57, No.1, pp.23-37.
Dong, X, Hinsch, CA, Zou, S and Fu, H 2013, ‘The effect of market orientation dimensions
on multinational SBU's strategic performance: An empirical study’, International
Marketing Review, Vol. 30, No, 6, pp.591-616.
Fornell, C and Larcker, DF 1981, ‘Evaluating structural equations models with
unobservable variables and measurement error’, Journal of Marketing Research,
Vol,18, pp.39-50.
George, WR 1990, ‘Internal marketing and organizational behavior: a partnership in
developing customer conscious employees at every level’, Journal of Business
Research, Vol. 20, pp.63-70.
Gounaris, SP 2006, ‘Internal-market orientation and its measurement’, Journal of Business
Research, Vol. 59, pp.432-448.
Gounaris, SP 2008, ‘The notion of internal market orientation and employee job
satisfaction: some preliminary evidence’, Journal of Services Marketing, Vol. 22, No.
1, pp.68-90.
Gronroos, C 2000, ‘Service Management and Marketing-A customer Relationship.
Management Approach (2nd ed.) ’, New York: Wiley & Sons.
Hunt, SD and Morgan, RM 1995, ‘The Comparative Advantage Theory of Competition,
Journal of Marketing, Vol. 59, No. 4, pp.1-15.
Jaworski, BJ and Kohli, AK 1993, ‘Market orientation: antecedents and consequences.
Journal of Marketing’, Vol. 57, pp.53-70.
Kohli, AK and Jaworski, BJ 1990, ‘Market Orientation: The Construct, Research
Propositions, and Managerial Implications’, Journal of Marketing, Vol. 54, No. 2,
pp.1-18.
Komiak, SYX and Benbasat, I 2006, ‘The effects of personalization and familiarity in trust
and adoption of recommendation agents’, MIS Quarterly, Vol. 30, No. 4, pp.941-960.
Laukkanen, T, Nagy, G, Hirvonen, S, Reijonen, H and Pasanen, M 2013, ‘The effect of
strategic orientations on business performance in SMEs: A multigroup analysis
comparing Hungary and Finland’, International Marketing Review, Vol. 30, No. 6,
pp.510-535.
Lings, IN 2000, ‘Developing the domain of internal market orientation and its
consequences for market orientation and performance’, In Services, Proceedings of
the 10th EIASM Workshop on Quality Management, Birmingham: Aston Business
School, Aston University.
Lings, IN and Greenley, GE 2001, ‘The development and validation of a measure of
internal market orientation’, The Research Institute Research Series, Aston Business
School, Aston University.
Lings, IN 2004, ‘Internal market orientation: constructs and consequences’, Journal of
Business Research, Vol. 57, No. 4, pp.405-413.
Lings, IN and Greenley, GE 2005, ‘Measuring internal market orientation’, Journal of
Service Research, Vol. 7, No. 3, pp.290-305.
MacKenzie, SB, Podsakoff, PM and Rich, GA 2001, ‘Transformational and transactional
leadership and salesperson performance’, Journal of the Academy of Marketing
Science, Vol. 29, No. 2, pp.115-134.
22
Tsai & Chi
Maydeu-Olivares, A and Lado, N 2003, ‘Market orientation and business economic
Performance A mediated model’, International Journal of Service Industry
Management, Vol. 14, No. 3, pp.284-309.
Narver, JC and Slater, FS 1990, ‘The effect of a market orientation on business
profitability’, Journal of Marketing, Vol. 54, No. 2, pp.20-35.
Piercy, N 1995, ‘Customer satisfaction and the internal market: marketing our customers to
our employees’, Journal of Mark Pract Appl Mark Sci, Vol. 1, No.1, pp.22-44.
Podsakoff, PM and Organ, DW 1986, ‘Self-reports in organizational research: Problems
and Prospects’, Journal of Management, Vol. 12, No. 4, pp.531-544.
Rafiq, M and Ahmed, PK 2003, ‘Commentary Internal Marketing Issues and Challenges’,
European Journal of Marketing, Vol. 37, No. 9, pp.5-8.
Ruekert, RW 1992, ‘Developing a Market Orientation: An Organizational Strategy
Perspective’, International Journal of Research in Marketing, Vol. 9, pp.225-245.
Sørensen, HE and Madsen, TK 2012, ‘Strategic orientations and export market success of
manufacturing firms The role of market portfolio diversity’, International Marketing
Review, Vol. 29, No. 4, pp.424-441.
Tortosa, V, Moliner, MA and Sanchez, J 2009, ‘Internal market orientation and its influence
on organisational performance’, European Journal of Marketing, Vol. 43, No. 11/12,
pp.1435-1456.
Webb, KL and Lambe, CJ 2007, ‘Internal multi-channel conflict: An exploratory
investigation and conceptual framework’, Industrial Marketing Management, Vol. 36,
pp.29-43.
23